Module 4 revision cards - part 2 Flashcards
What is management accounting
The sourcing and analysis of financial and non-financial information for a business’s management to help them run the business effectively and efficiently
What is a management accounting system
A system or process which collects internal data from business operations such as sales, inventory, raw materials and then analyses the info to produce reports for management
What to consider when choosing a man account system
One that integrates with the business’s financial accounting system to increase the timeliness of management reports and eliminate redundant work or duplication
Difference between financial and management accounting
Financial
1 Primarily used by external stakeholders
2 Info is based on historic data (look backwards)
3 Reports using accounting standards
Management
1 Used by internal stakeholders
2 Info to analyse trends and statistics to inform future strategy (i.e. ‘looking forwards’)
3 More complete reporting with no rules and legislation around how to prepare it
How should man accounts be reported/formatted
Accurate
Understandable
Comparable
Timely/up to date
What is the main type of accounting system and what is its purpose
Cost accounting system
Looks at all of a businesses expenses to determine the fixed and variable costs associated with making the product
What are different types of cost accounting method
Standard costing
Normal costing
Actual costing
Activity based costing (ABC)
Life cycle costing
Target costing
Explain how each type of cost accounting method is calculated
Standard - using PREDETERMINED/STANDARDISED expected costs (“standards”) for both direct AND indirect costs to estimate the total cost of production of an item or output
Normal - using ACTUAL DRIECT direct costs and PREDETERMINED indirect costs
Actual - using ACTUAL direct AND indirect costs
Activity based - overheads/indirect costs apportioned/ allocated more of the total overhead depending on volume of product
Life cycle - cost accumulated over the entire products life. From R&D all the way through to discontinued
Target - goals are preset. The business plans target price point, product cost and margins in advance but cancels the project if these cant be attained or maintained
In what 2 ways does man accounting evaluate and analyse performance
Key performance indicators (KPIs)
Balanced score cards
What is a KPI
Values that can be used to evaluate how successful something has been in meeting performance or objectives
Often measured against 1 of 4 types of benchmark
What are the 4 types of benchmark
Internal
Functional
Generic
Competitive
What does each of the 4 benchmarks compare
GENERAL INTERNAL COMPETITION ACHIEVES BEST IN CLASS
Internal - against other units or areas within the business
Functional - compare internal functions against the best in class external practitioners
Generic - compares a process to a conceptually similar process in another/unrelated business or industry
Competitive - compares against a direct competitor
What is a balanced score card and what areas of measurement does it cover
FINANCIAL CUSTOMERS LEARN AND GROW THROUGH INTERNAL BUSINESS
Analyses 4 areas to help monitor and develop KPIs - FLIC
Financial - performance and how it looks to its shareholders
Learning & growth - where it can continue to grow and create value
Internal business - evaluating processes, bottlenecks, waste, delays, as well as evaluating what the business excels at
Customer - how it is perceived by its clients
Ways in which a business can plan and forecast
Cost allocation
Financial modelling
Weighted average cost of capital
Scenario planning
Business valuation of projects (discounted cash flow, net present value)
What is cost allocation
Where a business identifies and assigns INDIRECT costs to a cost object (something the business wants to separately measure costs for)
What is cost tracing
Where a business identifies and assigns DIRECT costs are allocated to cost objects
What is financial modelling
Examine how different economic situations or events would affect the business
Putting different variables into a mathematical equation/formulae to see the impact it has on the business
What is weighted average cost of capital
The minimum return to satisfy its creditors, owners and other providers of capital (expressed as a %)
What are the 2 main sources of business funds
Equity financing
Debt financing
What is equity financing
The capital raised by selling shares